Benefits of using a QTIP trust for asset protection

When creating an estate plan, Idaho couples have a wide range of options. For those who are seeking maximum asset protection, establishing a trust is one of the best possible choices. In particular, a QTIP trust offers a high level of protection, as well as a degree of flexibility.

QTIP stands for Qualified Terminable Interest Property. This type of trust allows a married couple to structure the transfer of assets upon the death of the first spouse. A QTIP trust will allow the surviving spouse to take advantage of the marital deduction, and also gives the surviving spouse the ability to control the distribution of assets. Additionally, all assets included in the trust would be protected from the creditors of the surviving spouse.

When a QTIP trust is created, a personal representative is named. That individual can then choose to make use of either the portability election or a partial QTIP election. This allows the personal representative to ensure that the first spouse’s exclusion amount is put to use and not wasted. From that point forward, the personal representative has a great deal of flexibility in how to use or distribute the assets held in the QTIP trust.

When creating an estate plan, Idaho residents should understand the pros and cons of various asset protection strategies. For many, a QTIP trust provides an excellent path toward retaining assets while protecting against the claims of outside creditors. However, this is just one of many estate planning tools available, and each family will have its own unique goals and needs within the estate planning process.

Source: Forbes, "Estate Plan Recommendations for Married Couples After ATRA", Lewis Saret, May 20, 2014

Living Trust vs. Family Trust

In some situations the name of a legal estate planning document is significant. The name can signify what, when, or how a fiduciary is allowed to represent you, the principal.

One exception is the name of a Revocable Trust, i.e. a Living Trust or a Family Trust.

To be clear, there are multiple types of Trusts available, all with differing names, so let’s just agree to talk about a revocable trust, i.e. the most common trust you will hear about.

Regardless of its name, a Revocable Living Trust, Revocable Family Trust, Living Trust, Family Trust, Husband’s Trust, Wife’s Trust, Kid’s Trust, they should all perform the same or similar functions; avoid probate, reduce or eliminate estate taxes, offer privacy, control distribution of assets, and provide disability or special needs planning, without regard to its title.

With this one narrow exception, the name of the Trust does not have a significant meaning to anyone but you.

Some general guidelines include if you want to leave all of your assets to your family, you can use the term Family Trust.

Conversely, a Living Trust can sometimes signify that the assets may be distributed to a larger number of beneficiaries, including foundations, scholarship funds, and charities, but this option does not exclude family members from being beneficiaries.

Past clients have been real creative with naming their trusts, including longitude/latitude coordinates of their honeymoon or dream vacation, latin phrases, funny phrases, or real short and sweet first names only, as well. It is up to you and how you want people to refer to your trust. If you leave it to me, I go with the family last name_trust. Not real creative, but that’s my comfort zone.

So, unlike the vast difference between a Living Will and a Will, the difference between a Living Trust and a Family Trust is only what you want it to be.

Contact Justin Jeppesen today at 208-562-4900 to get started with your Family Trust or Living Trust. Or, schedule your own complimentary consultation here:  https://calendly.com/idahoestateplanning

Avoid Probate By Giving Home to Kids, Good or Bad Idea?

“Can I avoid probate if I give my house to my kids?”

Have you thought this before?

You probably have, because I receive this question often.

My answer is, “Yes, you can potentially avoid probate by giving your home to your kids, but here is a list of other things that can potentially happen or will happen.” And I proceed to explain to the client exactly what else CAN happen and let them decide if they want to take that risk, because it is a huge risk with a very small reward.

Why is avoiding probate a small reward?

Currently, Idaho is very much a probate-friendly state. Or another way to state it, probate in Idaho is not something that absolutely needs to be avoided.

These are typically the two main considerations against deeding your home to your kids solely to avoid probate court:

    First, if you deed your house to anyone, your kids included, they own it. That seems obvious, but THEY own it and all the powers, risks, and obligations of owning property now belong to them and NOT you; and

    Second, if you gift the property while you are alive and your kids sell it when you pass away, this may increase the taxes due when they sell “your” home.

The first problem has multiple implications, and every potential outcome cannot be presented here. That said, I do want to cover the most pressing concerns that I perceive.

If your kids own the home you live in and your relationship becomes strained, you can’t take back the gift of ownership of your home. Actually, they can force you move out because they now own the residence.

But, you aren’t worried about that ever happening, right? So, what else do I have for you?

Good question.

If a creditor ever goes after your child for an unpaid debt, that creditor can attach said debt to the house and then make your child sell the house and use the proceeds from that sale to cover the debt.

Where does that leave you?

But, you say, my kid is good with money so that won’t be a problem.

 Here are three common sources of creditors that don’t concern the ability to handle money: health care, accidents and divorces. And, because your kids own the home and do not live in it, there will not be a Homestead exemption applicable for the equity that you had in the home, so you could be forced out of your home during your lifetime.

  • A side note: if your kid owns the home, you will be ineligible to apply for the property tax exemption called the Homeowner’s Exemption. This alone can cost you around $1,000-$2,000 per year for the rest of your life.

The second problem is a fear of long term capital gains tax. Without getting into taxes, let’s just say that a home passed through a Will or Trust, and sold shortly thereafter, will avoid this type of tax. This can oftentimes be in excess of $10,000, $20,000 or $30,000 dollars in capital gains tax.

 Even though deeding your home to your kids seems like a good, cheap alternative to creating a Will or Trust, in the end it costs you more (no more homeowner’s exemption), it can potentially cost you everything (i.e. kids kick you out, or their creditors do), and it can potentially cost them in capital gains tax.

 The risk is too high for such a small reward. But, if avoiding probate is something you believe you must do, why not create a Trust? By doing so you can avoid the above risk, avoid probate, and save yourself thousands of dollars on future homeowner’s exemptions filings.

 Call Justin Jeppesen today at 208-562-4891 to set up your Complimentary Consultation to talk about the alternatives to deeding your home to your kids, or how you can avoid probate.

Revocable Living Trust as a Creditor Shield?

Are you planning to create a Trust to avoid current or future creditors? Please proceed with caution, with an understanding that it probably will not work out the way you would like it to.

During conversations covering Trust-owned property, an idea gets thrown my way almost every time that “if I have a Trust, then my creditors will not be able to take my assets.”

The idea follows this line of thinking:  if the Trust owns the property, then you don’t own the property as an individual and a creditor can’t get to those assets because you don’t own the property, the Trust does. Seems simple. Asset protection.

Here is the flaw to that thought: the most widely used Trust is a revocable Trust, which does not provide that type of protection. The point of being revocable allows you have the power to add and subtract assets from the Trust’s ownership, amend the Trust, terminate the Trust, etc. So, really, from a public policy perspective, you still own the assets that are held by the Trust.

Even if you created one of the Trusts that allows you to avoid creditors’ claims, you still aren’t guaranteed to be judgment proof if a judge determines that the purpose behind this transfer was fraudulent, see Idaho’s and the Federal Fraudulent Transfers Act, or if the transfer to Trust was done within a statutory time limit called a “look-back.”

This does not mean that you will lose everything if a creditor comes after you.

Idaho does have a law called the Homestead Exemption, which allows for up to $100,000 in equity in the home you own to be free from attachment by a creditor. Additionally, a few other items of personal property are exempt up to certain dollar limits.

Without getting too far into the weeds, there are other asset protection strategies out there, i.e. using the exemptions, certain types of Trusts for specific and narrow purposes, “equity stripping”, LLCs, Limited Partnerships, Family Limited Partnerships, and good old-fashioned Prenuptial and Post Nuptial Agreements (a divorcing spouse can be a “creditor” as well).

In the end, there is a plethora of reasons to create a Trust, but protecting assets from creditors is not one of them.

If you have questions, concerns, or would like to find out how to create your Trust-based estate plan, call Justin Jeppesen at 208-562-4891 or email jjeppesen@parsonsbehle.com.

Dementia Focused Advanced Directive

An Idaho Directive to Physicians (unfortunately labeled as a Living Will) allows you to specify what kind of life sustaining treatment should be administered or withheld if you are diagnosed with:

  1. I have an incurable or irreversible injury, disease, illness or condition, in which your death is imminent; or
  2. I have been diagnosed as being in a persistent vegetative state. The statute (Idaho Code 39-4502 (11)) defines "Persistent vegetative state" as an irreversible state that has been medically confirmed by a neurological specialist who is an expert in the examination of nonresponsive individuals in which the person has intact brain stem function but no higher cortical function and no awareness of self or environment.

An irreversible condition is a condition, injury or illness that may be treated, but is never cured or eliminated, leaves a person unable to care for or make decisions for himself, and is fatal without life sustaining treatment provided in accordance with the prevailing standard of care.

As our population ages, an increasing number of people will be afflicted with age-related diseases, such as Alzheimer’s and other forms of dementia. Although irreversible, those diagnosed with these diseases can live for prolonged periods of time with treatment.

Early in the disease, a good quality of life can be maintained, but as the disease progresses, those suffering with dementia lose their ability to recognize family members, become increasingly fearful and agitated, and lose the ability to take care of themselves.

If you are diagnosed with dementia, what type of treatment would you want? Would your wishes change as the disease progresses?

Dr. Barak Gaster, an internist at the University of Washington School of Medicine, believes that most advance directives are not well-suited for diseases that progress gradually because they do not adequately account for the fact that treatment wishes may change as the disease advances. So, he worked with others to create a dementia-specific advance directive that allows those diagnosed with the disease to better express their wishes. The Health Care Directive for Dementia (pdf) provides information about the symptoms of mild, moderate, and severe dementia, and allows individuals to specify their treatment goals depending on the course of their disease. For example, someone could specify that he would like to receive all available treatment to prolong his life, including being resuscitated if his heart stops beating, if his dementia is mild, but that all care to prolong his life should be discontinued when his dementia becomes severe.

The New York Times recently featured Dr. Gaster and one of his patients in an article titled: One Day Your Mind May Fade. At Least You’ll Have a Plan.

 

Do I need an Estate Plan?

What is an estate plan?

An estate plan is the process of setting in place a plan to manage and distribute your assets upon your death, guardianships for minor children, and planning for during life care with the use of a financial power of attorney, a health care power of attorney, and an advanced health care directive (called a living will).

We won't cover the powers of attorney in this post.

If you have never created a Will or a Trust (considered a Will alternative), you still have a default estate plan. This estate plan is not one that you have selected but an estate plan that the State of Idaho has created for you, called the laws of intestacy.

So, if you do not want the default estate plan, it is important that you take some time to think about:

who you want to administer your financial assets (personal representative or trustee);

who you want to leave assets to (inheritance),

how you want to leave assets to these selected beneficiaries (think minor aged kids, financially immature beneficiaries, or possibly at risk of substance abuse); and

if you have minor kids, who you would feel comfortable raising your children if you could not be there (guardian nomination).

Creating your estate plan starts with your desires and values, then whom you want to benefit and how the benefit you leave them, then we deal with your financial picture to make your plan meet your above goals.

To answer the above question, yes you need an estate plan. The real question is will your plan meet your desires.

Property Taxes and Trusts, Can I Still Get A Break?

You have decided that you want to create a Revocable Living Trust. Now that the big decision is out of the way, you are flooded with nagging questions you never would have considered before. A popular one is, whether putting a home into a living trust or family trust will increase property taxes.

 Handled properly, it will not.

 The Idaho State Tax Commission requires the county assessors in Idaho to accept the trust owned property in similar fashion as an individually owned property for tax purposes. To do so, you need file an Affidavit Regarding Residence of Trust at the same time that you file the deed to transfer your home into the trust.  

 The Affidavit Regarding Residence of Trust assures the county of two things: (1) that you are still living in the home, and (2) that you are the creator and current beneficiary of the trust in question.

 With these assurances in place, your new trust will have zero effect of your property taxes.

Your job is to ensure that your complete living trust package includes the preparation and filing of the Affidavit Regarding Residence of Trust at the same time that the deed to transfer your home into the trust is filed.  

Of course, if you have this office prepare your trust, that Affidavit is automatically included in the package. Hint, hint, nudge, nudge.

Is a Will an Estate Plan? Or, Do I Need Something More?

When clients and I first sit down to talk about planning their estate, the clients generally comment that all they need is a Will.  

This happens with some regularity, because a Will, as far as estate planning is concerned, is one of the most often talked about estate planning tool. However, that is all it is, a tool in your estate plan. A very important tool, but a Will is not a complete plan.

After asking a series of general questions and specific questions and the ensuing conversations those questions bring to light, the clients decide whether they need a Will or a Trust, and the additional documents which make up a complete estate plan.

 

For a Will based plan those other documents include:  

  1. A durable power of attorney for financial decisions;

  2.  A durable power of attorney for medical decisions; 

  3. If the client is a parent of minor children, a power of attorney for minor children; 

  4. A health care directive (or living will); and 

  5. A HIPAA release.

Each of these documents perform specific functions that the others cannot. 

The big distinction between the above documents and a Will is that the listed documents are for your protection while you are alive, but not able to speak or act for yourself. That can be either due to incapacitation, mental illness, or in some cases disappearance. However, the Will does not carry any authority until you pass away and it has been validated in a Probate court proceeding. Because of this difference in timing, you need all documents that pertain to you to ensure a well-rounded set of protections is in place for you.

Although a Will is a great first step, and an important tool to have, it is not a complete plan.

Schedule a conversation with Justin Jeppesen to take the first step towards creating your complete estate plan! With our Complimentary Initial Consultation, we help our clients explore their own situations and plan for their futures. If you have more questions, we would love to help! Contact Justin Jeppesen of Parsons Behle and Latimer now. (208) 562-4900

How Can I Update My Will?

So, you have just read “How Often Do I Need to Update My Will?” and you have decided that a few changes need to be addressed in your Will.

However, the changes are small and you don’t believe it requires a brand new Will.

Are there options for those in your situation? Yes. You can have your attorney draft a codicil to your Will.

A "codicil" is will-speak for an amendment to your Will. If you do not want to rewrite your entire Will, you can use a codicil to change certain provisions (or paragraphs).

The probate court will read the Will and all codicils together to determine the final intent of the deceased.

A codicil is, in essence, a mini-Will. It is prepared, signed and witnessed in the same manner as an ordinary Will; this is why I highly encourage contacting Jeppesen Law to draft your codicil. This helps to ensure that your codicil meets the same high standards as your Will, (these notes also apply to your Revocable Living Trusts as well).

Specific detail must be taken in writing your codicil to define exactly what changes need to be made in your Will. If an heir is to be removed or added, it must be clearly stated, not just hinted at. This is because the State of Idaho’s laws have protections for people believed to be “forgotten” about during the writing of a Will.

Your codicil should be kept together with your Will to assure that it will be included in the Probate process. A codicil is governed by the same rules as a Will. Therefore, if a codicil is missing, it will be presumed to have been previously revoked unless conclusively proven otherwise.

All changes to your Will must comply to the same formalities used in making a new Will. A person who simply deletes old provisions or inserts new clauses brings the validity of the Will into question.

A person can revoke his Will at any time by another Will or simply by destroying the old Will. Some states would consider the writing of the new clauses an effective revocation of the old Will, yet ineffectual in creating a new Will. So, PLEASE, do not write on your Will.

A person should never write a change on the face of a Will (this refrain includes crossing out sections). All changes to a Will should be by a valid codicil or a new Will in accordance with the requirements of the state where you live.

Given the ease with which new Wills can be created, there is no reason to risk invalidation of an existing Will by writing on it. Just prepare a new Will or a codicil.

Jeppesen Law can provide you with a comprehensive Estate Planning. With our Free Initial Consultation we help our clients explore their own situations and plan for their futures. If you have more questions, we'd love to help! Contact Jeppesen Law now. We wish you all the best. (208) 477-1785.

How Often Do I Have to Redo My Will

Creating your Will or Living Trust is a very important decision you should make. However, it is not something you can do once and forget about.

Your Will or Trust is a “snapshot” of right now. Too much life tends to happen going forward that often makes it necessary for you to periodically update your Will or Trust. An update is generally desired after the 5 to 10 year mark.

However, if nothing has changed in your life since you drafted your Will, there is usually no need to update your Will. Unless changed, once your Will is drafted, it is valid forever.

Typically, over time your needs, wants and circumstances will change. A Will created many years earlier may no longer reflect your current desires, or needs.

Another change in circumstance to consider are the laws. Since your first Will or Trust was created, the laws and other public developments may have changed or been created. These changes can have an impact on your Will. The possible changes, creation, or update in law, is not a cause for concern, but something to be aware of. This is also a good reason to work with an attorney who focuses on estate planning.

The following changes in your life should immediately cause a review of your Will:

1. A change in marital status. Marriage makes the new spouse a pretermitted heir. A divorce might not cut the ex-spouse out of the Will.

2. Children are born or adopted. State laws allow unmentioned children to claim a portion of an estate as pretermitted heirs. These children, however, might not receive under state law what the decedent would have given them.

3. Step-children. In most states, step-children of a deceased person have no rights to inherit under a step-parent's estate. Therefore, if a step-parent, or commonly, if a step-grandparent, wishes to make dispositions to a step-child, that intent must be specifically stated in a Will.

4. Estate Value. The value of the estate changes and the earlier gifts were too much, too little or there is now enough to give to others as well.

5. Death-or- Health Changes. The intended heirs, executors, guardians or trustees have died or he or she are no longer in good health to be able to carry out this role.

6. Laws. Changes in estate or inheritance tax laws that make changing the Will advisable. Also, HIPAA laws are becoming much more stringent and your Powers of Attorney should reference them. Or, have you moved from one State to another? Are the laws of the new state similar or not? Would updating your Will or Trust benefit you after a move?

7. Needs. The necessity for testamentary trusts for surviving spouse and children no longer exists.

A Will should be reviewed every few years for possible changes. Tax laws change frequently and Wills should be reviewed to ascertain their effect on the estate.

An important and very likely change in our lives is moving from one state to another. I have covered whether or not to update an out-of-state will before here. If you have recently relocated, I encourage you to read that post. However, the short version is that just moving from one state to another does not necessitate an update to your Will. There generally are other factors involved, but the move alone is not one of them.

What is the Difference Between a Living Will and a Will?

A living will, despite its name, isn't at all like the Last Wills that people use to leave property at their death. A living will, which can also be called a directive to physicians or advance directive, is your legal document to tell your physicians your wishes for end-of-life medical care, in case you become unable to communicate your decisions. It has no power after death.

With that explanation in mind, one of the major differences between a will and a living will is the time they take effect. A Last Will and Testament has no legal authority until you've passed away, at which time it must be filed with a probate court. A living will, on the other hand, takes effect while you are still alive, but your health care situation has meet certain state requirements giving it authority. Generally, a living will does not go into effect until you are incapacitated, in Idaho, it is often because you're in a persistent vegetative state (brain dead) or your death is imminent, and you are incapable of communicating your end of life choice. Jeppesen Law recommends a living will as a useful way to avoid costly and time-consuming litigation among family members about your end-of-life treatment, if you don’t remember, please read about Ms. Terri Schiavo’s story.

The essential function of a living will is to provide instructions to your health care providers and express your preferences for treatment, which is why in some states it is referred to as an advanced healthcare directive. An advanced directive can signal whether you want to receive all possible life support treatment, including artificial respiration and intravenous feeding. Similarly, your living will can reflect the fact that you do not want to receive life support. You can also express preferences for or against other specific treatments and medical procedures.

Again, this is in sharp contrast to a regular “last will and testament,” which has no effect when the will-maker is alive but becomes legally binding at death.

What Does A Will Cost?

An attorney whose practice focuses on Wills and Trusts should be able to tell you how much yours will cost early in the conversation.  If he or she can’t or won’t give you that information early on, that is not a good sign.

Any time I have been the customer on the receiving end of a service, I don’t really care what the hourly rate of the service provider is.  

I just want to know how much the whole job was going to cost.  

And if I couldn’t be given a total, I would get fairly nervous.

Why shouldn’t lawyers operate similarly.  We should be able to ask a series of questions and then give a firm figure to anyone who asks “how much will this cost?”  

Yet almost all lawyers just shrug and tell potential clients how much per hour they charge.  No wonder clients are nervous about the magnitude of their fees becoming a moving target.

Realizing my own consumer desire for knowing what the total cost will be, I began the practice of quoting fixed fees whenever possible.  ***Fees located on the click through link***

Today, almost all of my work is done for a fixed fee that is specified in advance and only changes when the client desires something in addition or something else.

Sometimes jobs take less time than anticipated.  Sometimes more.  But overall, my years of experience result in a minimum of true surprises.

More importantly, the confidence it gives the client going into the relationship is irreplaceable.

Who Inherits When There Is No Will?

During a phone call this past week I was asked if the state of Idaho would take all of his possessions if the caller died without a Will.

Fortunately, the answer is “probably not.” However, in the highly limited circumstance where there were no remaining blood, or adopted, relatives, then the answer is yes.

Unfortunately, even though the state of Idaho probably will npt take your property for itself, it WILL control who inherits your assets if you pass away without a Will.  And, often times, you will not like who they choose as your beneficiaries.

So, if you want to determine who should receive your belongings, money, and important family items, and you don’t want Idaho to make that determination for you, it is important for you to have a Last Will and Testament prepared so that you make that call.  

Additionally, making the determination of who is to serve as your Executor or Personal Representative to make sure your wishes are followed is a seemingly insignificant assignment, but more issues arise over this one issue that any other I have come into contact with. You can make this determination in your Will. If you don’t have a Will you leave your family members to squabble over who will take this role on.

If you don’t make these decisions in writing, the state will make them for you.